Auto and industrial demand have witnessed a stunning recovery in May compared to the lockdown periods, according to India’s leading battery manufacturer Amara Raja. But demand from major metro cities looks bleak as some areas are still placed under restrictions. 

 

In May, demand recovery was visible and economic activities gained momentum, said the company in its earnings call. Overall demand for batteries is on a mend, however, metro cities are likely to take more time to open up. Some of Amara Raja’s warehouses are still not operational as they are located in containment zones.  

 

Sales in tractors, inverters, two-wheelers and four-wheelers segment had a reasonable volume throughput in May. As the lockdown is being gradually lifted, the company will have to carefully calibrate how the demand recovery will happen and how other suppliers would behave. Replacement markets are expected to have strong and fast recoveries, believes Amara Raja. 

 

Since March, the company is handling the COVID-19 crisis situation with shutting down of their pants in line with the lockdown guidelines, however, the company continued to cater to the needs of telecom sector which is classified as essential service. The company stated that 8 out of 10 batteries that could have discharged during the lockdown can be jump started. This put together would also mean a rise in battery scrap

 

Capex

The company is building its third automotive battery plant for four-wheeler which would be ready for production in the current fiscal. This would improve the company’s facilities to cater to domestic and export markets. This plant will have the capacity to produce 6mn batteries with two more facilities being set up to produce 2mn batteries each. The company’s four-wheeler capacity with an expansion of its second auto battery plant has pushed annual production to 12mn batteries, which was added in a phased manner in FY20. The company’s recent addition to two-wheeler battery unit will push capacity to 19mn batteries annually. 

 

Annual and Q4 performance

The automotive sector in India was severely impacted by the COVID-19 pandemic in Q4. Amara Raja’s four-wheelers segment reporting a flat volume growth from the year prior but the aftermarket performed better. The Original Equipment Manufacturers (OEMs) witnessed a 20pc degrowth in Q4 compared to the year prior. Aftermarkets grew 10pc in FY20 from the prior year, while OEMs de-grew by 22-23pc, however, the degrowth in OEMs was compensated by higher exports. 

 

The company’s inverter segment growth was flat in Q4 as March is the month for demand pick up, but the lockdown impacted sales. Home inverter segment has grown by 5pc from last year in terms of volumes. 

 

Amara Raja’s volumes in the industrial segment grew by 5pc in FY2020 from the prior year despite telecom sector facing challenges. Volumes to UPS segment grew by 10pc from the year prior but volumes to telecom sector fell by 5pc. A decent demand from telecom business came through in Q4 compared to Q4FY2019 as volumes grew by 6pc. 

 

Exports

Amara Raja primarily receives export orders from Africa, the Middle East, Central Asia, South Asia and Southeast Asia. The company plans to expand to other export markets in the auto segment, going forward to meet the demand in global automotive segment. Domestic demand is still unreliable and unpredictable due to COVID-19 and the company wants to enter new export regions to offset the lower demand in India. In FY2020, the company’s export volumes in the automotive segment grew substantially, but in Q4 several export markets were under lockdown because of COVID-19, which impacted March shipments. 

 

Inventories

With the easing of lockdown and the start of economic activities, the company is trying to reduce built-up stocks. Most of Amara Raja’s plants are operating at 40-50pc capacity and it plans to ramp up production in the next few weeks.

 

Financial performance

The company’s operating performance for Q4 was Rs2,430mn ($32.06mn) up from Rs2,420mn the prior year quarter. Amara Raja’s net profit in Q4 was Rs1,370mn, up by 15.12pc from Rs1,190mn the prior year, while for the full year, net profit was up by 2.5pc at Rs4,830mn.

 

($1=75.79)

Leave a Reply

Your email address will not be published.